Nasdaq, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day and thank you for standing by. Welcome to Nasdaq's First Quarter 2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
Good morning, everyone, and thank you for joining us today to discuss Nasdaq's First Quarter 2024 Financial Results.
Thank you, Ato. And good morning, everyone. Thank you for joining us.
our outlook on the external environment as well as highlights from our first quarter financial and operational performance, including innovation milestones and key progress updates on our cross-sell efforts and synergies. I will then turn the call over to Sarah for a review of our financial results. I'll start with our outlook on current economic environment.
Thank you, Adena. And good morning, everyone.
[Operator Instructions] And I show our first question comes from the line of Owen Lau from Oppenheimer.
Could you please add more color on the cross-sell campaigns to achieve your $100 million target? What is the plan for the rest of this year? Does it mainly cover the cross-sell within Adenza or between Adenza and Verafin or across the whole company?
Thanks, Owen. Sure. So we actually described the current cross-sell campaigns at Investor Day a few weeks ago, and it really covers across the fin tech division. So one of the cross-sell campaigns is really focusing on bringing more of the Calypso risk management, collateral management capabilities into our market operator clients.
Got it. That's helpful. Just a quick follow-up on Verafin. I think you didn't sign Tier 1 and Tier 2 banks this quarter, but the number was still pretty strong. Can you please talk about the pipeline for the rest of this year for Tier 1 and Tier 2 banks and also give us an update on the international expansion opportunity?
Sure. Yes, sure. So you're right. We didn't sign any new clients, but we are working really well and implementing the clients we signed last year. And that's going quite well. And we have a lot -- a very, very good pipeline of companies either that we're in the middle of doing proofs of concepts for or we're in the middle of contracting. And so we do feel very good about our ability to continue to sign those clients as we proceed through the year. And it's interesting.
And I show our next question comes from the line of Alexander Blostein from Goldman Sachs.
So maybe starting with Adenza as well. Really strong year-over-year growth you pointed out, about 20%. And it sounds like a lot of it is coming on the Calypso side, so can you kind of help us bridge the sources of growth, particularly at Calypso and, as you think on the forward, how you see that opportunity unfold for Calypso specifically over the course of this year and into next?
Sure. Thanks, Alex. Actually I'll go -- I'll cover Calypso and AxiomSL together, so -- I mean each of them. But I think Sarah did a really nice job of laying out the growth for each of the products as well as combined. And what you're seeing is some of it is timing of renewals. So we did have a really good renewal quarter for Calypso and AxiomSL but particularly at Calypso with more of the on-prem deliveries, so our on-prem renewals, which you know is a good revenue driver for us in terms of how we recognize the license fees.
Great. And then my second question is just around the market tech business. You flagged that you signed agreement to upgrade a number of clients, I think you said 3, to a new matching engine next-gen platform. Can you help us maybe contextualize what that means in terms of revenues? Is it stronger revenue? Is there any sort of installation fee upfront, profitability of those platforms? If there's any -- any meat around the bone would be great.
Yes, sure, yes. So I think, when we sign new clients to the next-gen system, whether it's trading or clearing, we do have implementation revenue, and now we're calling that professional services revenue that comes in as we work through the implementation. We'd start to receive the license revenue upon delivery, so that's a little bit of a difference between Calypso, Axiom versus market tech.
And I show our next question comes from the line of Dan Fannon from Jefferies.
I wanted to follow up on capital access. You talked about some pickup in listings but clearly still slower than we've seen previously in previous years, but curious about the revenue impacts. I think you mentioned still some flow-through of the delistings that occurred, so wondering how we should think about the revenue progression this year. And then also tying that to Workflow and Insights, it sounds like any rebound or recovery in that segment is also tied to a pickup in listings. So just curious about the outlook there and what really will get that business kind of accelerating growth.
Sure. I'm going to hand the first part of the question over to Sarah. And I'll talk about Corporate Solutions.
Yes. So what you're looking at in Data and Listings and listings, in particular, is that we are coming into the year, and that's what we've discussed for a while at this point, with some headwinds. And in particular, I gave you the $10 million for the delistings of last year and the downgrades. And so that's the impact for 1 quarter.
Yes. So that -- I think we started to talk about that towards the end of last year, but I think it's important to recognize, as Sarah said, it's a slow-moving train in terms of both the impact of the delisting environment but then also the impact of an improving IPO environment.
Great. That's helpful. And then I guess, just on the Index business, based upon quarter-to-date or year-to-date activity, is -- can you give us a sense of when the tiering might occur with the pricing with CME based on where things sit now?
I mean that generally occurs in the second quarter. I don't think that we have a precise answer to that, but it generally occurs in the second quarter.
And I show our next question comes from the line of Michael Cho from JPMorgan.
I just wanted to touch on Axiom and Calypso as well. I mean it looks like each of that ARR trends are healthy. And clearly the increase in subscription revenues are helping that growth this quarter. I guess can you just help us unpack a little bit about how much price and upsells was a driver here in terms of that revenue growth and how that mix might change in the coming years? And is there a different approach to that when we think about Axiom versus Calypso? Because clearly they serve different markets and different solutions.
Yes. So I think that I would say, first of all, as we said before, we have about -- half the revenue increases tend to come from upsells. And half come from pricing changes and new sells -- sales. We don't try to break that out further than that. And I think that's generally the case. I don't know if it's precisely the case for this quarter, but that's the general way that we consider the revenue growth.
Great. And then just a quick follow-up on marketplace tech. I think I heard, Sarah, you say the 3% to 5% for 2024 in terms of revenues. I just want to make sure I caught that right. And two, what's the driver there in terms of the back half loaded in terms of the revenue growth?
Yes. So you heard me well that we would be well positioned within the 3% to 5% range there. And I did say a muted second quarter and the fourth being back ended.
Yes. I just want to say we have some deliveries that we're delivering kind of partway through the year. That, obviously, has been turned on the license revenues, and so that can help. And then we feel that we have a good pipeline of growth and new clients so that we'll be able to deliver growth as we go through the year, but we feel very good about -- as you said, it's within the range, and I think you said strong within the range.
Yes. And I would just add also that the project delivery, which was a tough comp, it was really a tough comp in the first quarter but also a bit in the second quarter.
And I show our next question comes from the line of Craig Siegenthaler from Bank of America.
We had a question on index options with NDX. How can you tap into the growing popularity with index options just given your strong brand with the Nasdaq-100 index? I think your share of index options is only about 1%, but the growth rates are high, and the revenue capture is very attractive in this business.
Yes. Thanks, Craig. Yes, you're right. So we have a great opportunity there, and we've been putting a lot of focus on that. It's been a good collaboration between our index team and the options team, so we -- what's nice is we have all of that within Nasdaq. So together, they're working on building a really good, robust trading ecosystem for the NDX options platform, as well as building on an institutional demand for our index products, which then drives interest in hedging and other things that would then drive interest in the index options.
And just for my follow-up, it's on the comparison between ARR and revenues given the growing focus you have on ARR. As you move into more subscription and reoccurring businesses, should we see more of a delta between these 2 metrics on a quarterly basis?
I would actually say that, as we move more towards cloud, there should be less of a delta, but that's a long transition. I think we have to recognize that, for the AxiomSL, Calypso and market tech businesses, those are still primarily an on-prem delivered solution with transitions to cloud, whereas for the financial crime management business it's entirely cloud, as well as NTS now. That's a SaaS business. So the majority of those revenues, you'll see more of a -- the ARR looking closer to total revenue.
And I show our next question comes from the line of Benjamin Budish from Barclays.
Just following up on that last question from Craig, is there anything you can share about sort of the upcoming pipeline in 2024 in terms of on-prem versus cloud implementations? Just I know you're kind of guiding and talking about the business on an ARR basis, but just as we think about our models, is there anything specific we can think about quarter by quarter?
Quarter by quarter, I think we're not going to provide that level of detail. I would say, if we look over the last year and we kind of looked at Calypso and AxiomSL over the last year, I think it was around 40%. Is that right? 40% new bookings?
Yes, yes. Almost half.
Yes. So almost half of the new bookings were cloud last year. I think that, as we were starting this year, we saw 50% of the new bookings for AxiomSL were cloud this year and with Calypso being lower around 18%, but as we said before, it's more of a timing issue. So we would hope that we would get around the same level over the course of the year, but we're not able to provide you kind of quarter by quarter. I think we just are giving you a little bit more overall color for the quarter in AxiomSL and Calypso just to help you model but not to that level of precision.
Got it. Understood. And then for my follow-up, I just wanted to ask on the IPO win rate. Just Q1 looks a little bit lower than what you reported in the past, but is that sort of just a function of the quarter itself? And based on the pipeline for the rest of the year, do you have any expectations on should that sort of trend back upwards? What are your thoughts there?
Yes, sure, yes. So I think every quarter is a little bit of a different story and based on the nature of the companies that are going public, but our overall view is that we have a great, strong pipeline. We have a great platform. We're very confident in our ability to keep our win rate high. And we're really excited about the companies that are looking to go public in the next -- hopefully, in the next quarters. And also -- I would also mention that, over the last year, our win rate was 80%. So we have to look at it a little bit over a longer period of time, but we have 80 companies in the pipeline to go public on Nasdaq. And we're really hopeful that they feel good about being able to tap the markets in the coming quarters.
And I show our next question comes from the line of Simon Clinch from Redburn Atlantic.
I was wondering if you could -- just going back to the cross-selling opportunities. At the Investor Day, you mentioned you're sort of starting to build an enterprise sales team. That's something relatively new to the Nasdaq story, as I understand. I was wondering if you could update us on how that's progressing. Are you -- have you already built it? Is this now a fully functioning team and driving the cross-sells? Or is that momentum still to come? And I have a follow-up.
Yes. Actually we had -- just had a meeting about it across the management committee last week, where we talked about how we're going to approach enterprise sales and making sure that we have -- across Nasdaq, we have a good connective tissue to make sure that we can deliver for the enterprises. And we're doing a lot in blocking and tackling.
Okay. That's great. And then I think, just lastly, I was wondering if you could perhaps expand a little bit more on the very strong flows we've had in the Index business and, in particular, interest outside of the Nasdaq-100 franchise. I mean could you give us a little bit more detail about that and just how to think about the momentum and sustainability?
Yes. So you're right. So we've given a stat at Investor Day that I think is worth mentioning. So about 70% of our revenue comes from the Nasdaq-100 franchise, but another 30% comes from other indices that we have in terms of innovative indexes around AI, cloud and cyber as well as momentum and other factor indices that we have around the world. So it actually is a pretty diversified platform.
And I show our next question comes from the line of Kyle Voigt from KBW.
Maybe just a couple of follow-ups. So first is a follow-up on Dan's earlier question on the Workflow and Insights business. It still sounds like the Analytics business is posting high single-digit solid growth. I think the Corporate Solutions, that likely imply is kind of flattish. And you noted the elongated sales cycles. I guess can you just talk about the average sales cycle for that business and kind of the lag time that you'd expect between when the IPO environment ramps and when you ultimately expect to see an acceleration in revenues in that Corporate Solutions business?
I think that the reason why we wanted to give you that level of disclosure this quarter is just to help you understand kind of how we see the year. I think that as -- if the IPO environment ramps up, and that's -- it's an if, we've -- and obviously it's a when at some point, but in terms of looking at it within the year, if we see improvement there, we tend to have, I would say, probably on average kind of a 6-month sales cycle would probably be a good average, around maybe 4 to 6 months in terms of an average on sales cycle for clients.
That makes sense. And then just a follow-up on kind of capital priorities. It sounds like, over the near term, #1 priority still remains deleveraging. I guess with the Thoma Bravo unlock coming later this quarter, can you just talk about any willingness to restart buybacks or start to deploy some capital towards buybacks this quarter? Or should we really expect that to be 100% allocated towards deleveraging near term?
Thanks, Kyle. So in terms of the capital prioritization, we're super consistent with what we said at the Investor Day. We were really glad to be able to pay down the term loan this quarter and to end the quarter at 4.1. We are totally committed to all of the time lines that we have given at Investor Day. So the 9 to 12 months ahead, you can consider that to be something that we will deliver.
And I show our next question comes from the line of Brian Bedell from Deutsche Bank.
Maybe just moving over to Verafin, continued strong growth in new SaaS clients. And then just trying to get a sense of what that might mean for the cadence of revenue growth in that segment as we move throughout the year, if you think that can improve from the 23% level, already pretty strong. And then the rollout of the Entity Research Copilot is -- just your thoughts on how that might contribute to revenue progress throughout the year in that segment.
Sure. Yes, we're not going to provide you specific kind of views of the revenue growth other than we say that it's mid-20s. And we feel good about the overall outlook there. I think that as -- with the copilot capability, the way that we're rolling out copilot would be the same that we're rolling out any new module that we provide to our small to medium bank clients. So when a small and medium bank client signs up for Verafin, they sign up for the platform. And we then introduce new modules into that platform -- or new capabilities into that platform through their contract period. And then at the end of the contract period, we walk through with them what's the return that we've offered them through that period and, therefore, what would be the price increase that we think is appropriate for the value that we're providing to them.
And I show our last question comes from the line of Michael Cyprys from Morgan Stanley.
Just wanted to ask about the Adenza business now that it's been about 6 months or so since close. Just curious, in conversations with clients of Calypso and Axiom, where you see the strongest moat across their business and capabilities? And where is there room for you to improve the moat as you kind of look out over the next couple of years?
Yes. I'd say, first of all, one of the really big -- let's start with AxiomSL. One of their strongest elements is that they're completely global. They connect into over 100 regulators and across more than 50 countries. And so when they're talking to a bank that has any business in any country, they can say, "Look, not only can we solve the problems within country, but we can help you with your entire global business and all the regulatory reporting needs."
Great. And just a follow-up question. I was hoping you maybe could elaborate a little bit on the new product road map strategy for Axiom and Calypso as you look out for the rest of this year.
Yes. So well, first of all, we are in a kind of what I would call an upgrade cycle for Calypso. So we have a new version that we're rolling out. And we're working to make sure we get all of our clients onto that version this year. So that's driving renewal activity.
This concludes our Q&A session. At this time, I would like to turn the conference back to Adena Friedman, Chair and CEO, for closing remarks.
Great. Well, thank you very much.
Integrate, Innovate, and Accelerate, which will underpin our leadership and momentum as we move through the year. United behind these strategic priorities and powered by our market-leading platforms, we're firmly positioned to unlock our next phase of resilient and scalable growth. We look forward to keeping you updated on our progress throughout the year.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.